DECEMBER 2013 BAD FAITH CASES:INSURER’S FAILURE TO FOLLOW INDEPENDENT COUNSEL’S ADVICE LEADS TO BAD FAITH CLAIM (Lackawanna County Common Pleas)
The plaintiffs were injured in an auto crash, and pursued a claim against the third party tortfeasor. Upon settlement of the third party claim, plaintiffs filed a UIM claim with its insurer. The insurer did not settle that claim, and the claim was forced to go to arbitration. Following the arbitration, the Common Pleas and Superior courts affirmed the arbitration award. Plaintiffs then filed suit alleging breach of contract and bad faith for the carrier’s handling of the UIM claim and allegedly frivolous legal positions and motion practice surrounding the arbitration of plaintiffs’ claim.
Plaintiffs alleged unreasonable delays began immediately following their filing of the UIM claim, while the insurer contended it was unable to move forward with the claim due to incomplete medical records provided by plaintiffs. Multiple disputes arose between parties in selecting the location of the arbitration, as well as in selecting a neutral arbitrator. More significantly, prior to the arbitration, the insurer did not set a reserve on the claim, and argued against explicit controlling case law that plaintiffs’ release of the third party tortfeasor also released the UIM insurer.
The insurer’s in-house counsel admitted to insisting upon advancing this legal position despite advice from the insurer’s independent counsel. The in-house counsel also insisted upon asserting the position that only a court could decide the legal effect of the subject release, and that the impending arbitration needed to be stayed. Following the arbitration award, the insurer appealed the common law arbitration on jurisdictional grounds, despite independent counsel’s advice that such an appeal would be without legal merit.
The court agreed with plaintiffs that a jury could reasonably conclude the insurer’s frivolous legal challenges of the release and jurisdiction, along with the timing thereof, unreasonably delayed the resolution of the UIM claim. Furthermore, a jury could reasonably conclude the insurer’s position was raised and maintained by and through a motive of self-interest or ill will. Finding genuine issues of material fact, the court denied the insurer’s request for summary judgment and allowed the case to proceed.
